For area homeowners, even renters, the offer is out there: Sign up for a community solar garden and potentially save thousands of dollars on your electricity bills.
There are reasons for people to be dubious — skepticism about door-to-door sales strategies used by some solar organizations, the daunting nature of signing a 25-year contract, the complexity of a program that’s a mix of government, a massive power company and private developers.
Other than a mortgage, people aren’t usually accustomed to putting their signature on a legal agreement spanning decades. But a community solar garden subscription offers a genuine opportunity to save money, along with supporting renewable energy, according to proponents of the program. And at least three options exist for Xcel Energy customers in Blue Earth County, giving people a chance to shop around and compare.
“They likely have access to a community solar garden that will provide them a good value,” said Dan Thiede, communications director for Clean Energy Resource Teams.
While signing up for a subscription isn’t difficult, the benefits vary widely by developer. Some offer a straight discount on a subscriber’s electric bill.
“Sometimes you can get (the savings) locked in as a discount — maybe save 10% on your utility bill,” Thiede said.
Others offer the prospect of much bigger savings, but the size of the windfall is more speculative.
“We generally think it’s a good idea to reach out to several companies if several are available,” Thiede said, comparing it to hiring a contractor or buying a new car. “It’s nice to be able to compare bids, and that’s the same with community solar.”
What is community solar?
The 2013 Minnesota Legislature created the program to give homeowners and other customers of Xcel Energy a chance to invest in solar energy without installing solar panels on their property. The legislation requires Xcel to purchase power from community solar gardens constructed and operated by private developers.
The developers, though, can’t just pocket all of the payments from Xcel. The builder and operator of the solar array must sell subscriptions to residents, businesses, churches, schools and governments within the county where the array is located or within a county bordering that county.
Homeowners who subscribe will generally pay a monthly subscription fee to the community solar garden developer — a share that can be the equivalent of as much as 120% of the homeowner’s historic electricity consumption. As each subscriber’s share of the array produces electricity, it goes to Xcel’s Energy’s electrical grid. Xcel then credits the subscriber for the energy production, offsetting all or a portion of the subscriber’s regular Xcel electricity bill.
During the long days of summer when the sun is shining for more than half the day and solar arrays are pumping out electricity, subscribers might see their entire Xcel bill wiped out by the solar credits received. In fact, the subscriber might be consuming less electricity than his or her share of the solar garden is producing, in which case Xcel banks the unused credits in the customer’s name and taps into that bank of credits in winter months when the days are short and the solar arrays are less productive.
Over the course of the year, the value of the credits paid by Xcel should exceed the cost of the subscription fees paid to the community solar farm developer.
Looking at options
Institutional subscribers might be offered a contract where they pay a lump sum up-front for the subscription and benefit over time via the Xcel credits that will reduce their monthly electricity bills. The city of Mankato, Blue Earth County and Mankato Area Public Schools all have large subscriptions.
Just last month, the city purchased another subscription from Cooperative Energy Futures for the new array it began operating in November near Janesville. US Solar has sold subscriptions to Bremer Bank, the YMCA, and the cities of North Mankato and St. Clair for community solar gardens it built last year near Good Thunder.
For residential subscribers, most will be offered a “pay-as-you-go” subscription, which involves little or no up-front cost but will entail paying two bills each month. They will be billed monthly by the community solar garden operator for their subscription. And they will continue to receive their monthly Xcel bill, minus the credit — the size of which will be based on the amount of solar energy produced by their share of the solar array.
One type of pay-as-you-go subscription has a set discount — the subscription costs are locked in for each of the 25 years, with the annual increases in the subscription rate spelled out in the contract. The value of the solar credits offered by Xcel are also fixed, including the annual increases, and the value of the Xcel credits are a bit larger than the cost of the subscription fees.
“Our prices are all locked in,” said Dana Hallstrom, residential program manager for Minneapolis-based US Solar. “You know what your rates are to start and for the full 25 years.”
Even with those fixed rates, the ultimate savings aren’t completely locked in because they will be determined by the actual amount of electricity produced by US Solar’s next solar array — one under construction near Nicollet. If the array is a bit more productive than expected, savings for subscribers will be higher. If it pumps out less electricity than anticipated, the total savings to the array’s subscribers will be less.
For this story, a subscription application was made to US Solar for the rural Nicollet solar array that’s expected to begin operation by mid-summer. After giving Xcel permission to share the electricity consumption of the one-story, three-bedroom home in Mankato, US Solar offered a subscription it projected would provide $89 in savings the first year, an annual benefit that would gradually decline to $79 a year by the end of the contract. The cumulative savings were estimated at $2,089 over 25 years.
That home actually uses less electricity than a typical home, so the savings stemming from the solar subscription are less, Hallstrom said.
“The average is actually $120 savings (the first year),” she said. That brings the cumulative projected savings to about $2,850 for the average subscriber.
Information about US Solar subscriptions can be found at us-solar.com/minnesota.
A higher (potential) reward
Another subscription application for the same Mankato home was made to Cooperative Energy Futures for the solar garden near Janesville in Waseca County, and the offer by the co-op represented another subscription model. That model is based on the assumption that Xcel will continue to regularly increase its rates over the next quarter century and those rate increases will exceed the increases in the solar garden subscription.
The projected savings are more speculative but also much larger, with the estimated savings for the Mankato home projected to be nearly $10,000 in reduced electricity costs over 25 years.
The projections were based on the assumption that Xcel will raise its rates annually by 3% a year — making bill credits provided by the community solar garden more valuable. The cost of the subscription, by contrast, will increase only 2% per year during the first eight years of the contract, at which point the subscription cost would remain constant for the rest of the contract.
In the first year, Cooperative Energy Futures would charge the Mankato homeowner $1,190 for the solar garden subscription while the credits applied to the homeowner’s Xcel bills would total $1,276 — a savings of $85.
By the eighth year, with those 2% annual cost increases, the annual subscription cost would reach $1,304 and would stay at that level for the final 17 years of the contract. If Xcel’s rates rise by 3% a year, the solar energy credits applied to the homeowner’s electricity bills are expected to total $1,461. Subtract the cost of the subscription from the Xcel bill credits, and the projected savings total $157 for the eighth year.
After that, assuming Xcel’s rates continue to rise by 3% annually, the savings really start to accelerate because the subscription costs are no longer increasing. In the 20th year, for instance, the savings are estimated to be $656. In the 25th year, it’s projected to be $899.
The estimated total savings stemming from the solar subscription for that Mankato home are $9,976.
“Basically, people are locking in a stable utility rate over the 25 years,” said Timothy Denherder-Thomas, general manager of Cooperative Energy Futures. “So as utility costs rise, you’re saving more and more money.”
Of course, the savings would be less if Xcel doesn’t raise rates by 3% a year.
What happens if some revolutionary new technology is discovered, and the cost of producing electricity actually falls?
That would threaten the savings predicted in the Cooperative Energy Futures contract.
“So you’re taking a little bit of a gamble that way,” Thiede said. “... That’s why some organizations who are a little more risk averse sign up for the discounted rate.”
But even if power generation somehow becomes surprisingly cheap in the future, Denherder-Thomas said Xcel will probably still be raising rates for the foreseeable future.
The reason, he said, is because Xcel’s investment in existing power plants and other infrastructure won’t be paid off for decades to come. For a subscriber to actually lose money, Xcel’s rate increases would need to average well below 1% a year over the next 25 years, Denherder-Thomas said.
More details can be found at www.cooperativeenergyfutures.com/subscribe.
CleanChoice Energy is a third solar garden developer taking subscriptions for 15 arrays being developed in Minnesota, including in Blue Earth and Nicollet counties. More information is available at go.cleanchoiceenergy.com/solar-in-mn-bluebird/.
More options may arise if additional arrays are built by other developers. Other opportunities will disappear when arrays reach capacity as subscribers are added. Cooperative Energy Futures officials said their array may reach capacity before the end of this month. US Solar expects to continue accepting subscriptions a bit longer for the Nicollet array.
“I would say by the end of spring it would be filled, if not sooner,” Hallstrom said.
But ... 25 years?
A 25-year contract might seem unworkable for many people. Renters probably don’t expect to be in their current apartment anywhere near that long. Even homeowners might figure on moving up to a bigger house or downsizing as children leave the nest. Older residents might wonder if they’ll be in an assisted-living center, a nursing home or even more constricted quarters in 25 years.
Which is why it’s important to look at the fees related to breaking the contract, according to a community solar garden advisory issued by the Minnesota Attorney General’s Office.
“Cancellation penalties can be expensive,” the AG’s office warns. “Therefore, consumers ... should consider whether they are able to commit to the entire term of these agreements and the penalties they will incur if they must break that commitment.”
Subscribers can transfer their subscription to a new home as long as they’re still in Xcel’s service territory and as long as they are still in a county adjacent to the location of the solar garden. Alternatively, someone selling a home can transfer the subscription to the home buyer, assuming the buyer wants it, or to anyone else in the eligible area, Hallstrom and Denherder-Thomas said.
If a subscriber simply wants to immediately break the subscription, there’s a fee. Denherder-Thomas said the fee is waived by Cooperative Energy Futures if three months’ notice is provided. Hallstrom said US Solar allows people to cancel every fifth year. Otherwise, fees as high as $250 will be charged for immediate cancellations.
Expanding subscriber base
Cooperative Energy Futures offers something most community solar developers don’t: a chance for almost any Xcel rate-payer to participate.
“That’s kind of the approach we’ve taken from the beginning,” Denherder-Thomas said.
Applicants with low credit scores are often rejected by other developers. Cooperative Energy Futures doesn’t even require a credit check.
As mentioned earlier, subscribers also can get out of the co-op’s solar program without penalty with three months’ notice.
The reason the cooperative can deal with a less stable batch of subscribers is that they establish a back-up subscriber to take over any portion of a solar array’s energy production if residential subscribers fail to keep up on their subscription fees or otherwise drop out. That’s a role the city of Mankato recently agreed to play.
Mankato’s subscription will involve 15% of the Janesville array’s capacity with the solar credits providing discounted energy for street lights and power consumed by the civic center. The city’s contract allows its share to grow to as much as 40% of the array’s capacity to cover gaps created by those shorter-term residential subscribers who leave the program.
“Our additional capacity and allotment will allow renters and small-business owners the opportunity to participate with short-term agreements that can be canceled at any time with three months’ notice,” the City Council was told in a Jan. 27 memo. “... The city’s backup subscription provides access to residents of all income levels to join and receive value from the solar garden.”
Read the fine print
The Attorney General’s Office cautions subscribers to look closely at the details of a contract before they sign up. Understand if there are any up-front costs of a subscription and look closely at the subscription “escalators” that push up the monthly costs over the years.
Also be wary of projected savings that are based on predictions of excessive increases in utility rates.
Thiede considers a prediction of 3% or less to be a good escalator: “If it’s 5%, then ‘buyer beware.’”
Also look closely at cancellation penalties.
“Those should be clearly printed in your contract,” Thiede said. “If it’s not, you should ask.”
CERTs, which has a mission of connecting Minnesotans to the resources they need to implement clean-energy projects, does not recommend specific solar garden developers. But Thiede said the organization does recommend doing a little research on a developer before signing up: “Do they have staying power to be around for the next 25 years? What is their background, and do they have the right experience?”
Thiede said a reputable solar garden developer offering a good contract is likely to provide savings to subscribers, considering how electricity costs have risen historically.
“But nobody has a crystal ball on the future,” he said.
Thiede has a community solar garden subscription, is satisfied with the results, and regularly looks at how his Xcel bill is reduced by the solar power credits generated by his share of the solar array — particularly in the summer months.
“I don’t actually pay a utility bill, typically, from May until September,” he said.